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Tom Benson, Vice President Strategic Sourcing

The dairy markets continued a march into record territory in November, with Non Fat Dry Milk reaching $2.00 per pound. The last time we reached $2.00 per pound, the entire dairy complex went into all time highs and caused extreme volatility. Non fat dry milk (NFDM) has been the barometer for U.S. prices, but Skim Milk Powder (SMP) and Whole Milk Powders (WMP) are the global barometer and they are clearly driving our markets with Chinese demand out pacing supply growth. WMP/SMP powder imports into China slowed, in the recently released October report, the second largest month in history and continues a trend of a record breaking year. In addition, Australia is significantly behind expectations on its supply and New Zealand is only meeting it’s growth expectations. Couple this with U.S. supply that is coming on slower than anticipated, these high prices look to not only be lasting longer than consensus, but will also create an even higher peak that will no doubt put stress on users and producers alike.

Milk protein prices will have to go up significantly in order to keep up with the rapidly rising milk cost. For every $0.10 per pound increase in NFDM cost, MPC 85 costs will go up by approximately $0.25 per pound. We have seen NFDM go up by $0.30+ per pound in the last few months, with the top not yet seen. We expect to see these higher levels last through the spring. These higher price levels can be surprising to end-users, but they are only reflecting the current demand and value for dairy proteins.

Because whey products are somewhat interchangeable with milk proteins and other dairy components, there is no way that these markets can be disconnected for much time and history shows this very clearly.

WPC 34 has shown the strongest increases in the last month, which has further buoyed what looked to be relatively stable WPC 80 prices going into Q1. As a result, WPC 80 markets are increasing faster than we would have thought 60 days ago. WPI, which already had some momentum, looks to also be stronger than forecasted with global prices $0.25-0.50 per pound higher than last quarter.

Lactose markets look to be the one market that appear to have downward pressure going into 2014, with more supply coming on line in the last 12 months and more supply coming on in 2014.

Sweet whey prices, which looked to be stagnant and flat have a more bullish feeling now due to the overall dairy complex and some uncertainty of supply next year.